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Demolition of an aging cruise ship terminal, needed to clear the way for construction of America's Cup facilities, began Tuesday during a ceremony that coincided with escalating concerns over the scale of the regatta and the financial benefits that it promises.

The cruise terminal at San Francisco’s Pier 27 will be torn down and replaced with a large steel structure that will serve as the hub of an America's Cup village. It is part of a sweeping overhaul of San Francisco's waterfront in advance of the America’s Cup races, which begin this summer and continue in 2013.

But doubts are growing about the number of spectators who will actually come to the city this year and next to watch the races of experimental catamarans. Preliminary races held on 45-foot vessels in San Diego and elsewhere are failing to attract expected crowds or sponsors.

The race courses in San Francisco Bay originally were planned to begin along the city's waterfront and then loop around Alcatraz, viewable from shorelines around the Bay Area, but much of the racing is now expected to occur between Alcatraz and San Francisco’s Marina neighborhood.

Meanwhile, just three sailing teams have paid the $200,000 registration fee required to vie for the right to challenge Larry Ellison’s Oracle Racing team during the main races of 72-foot boats on the bay next year — far shy of the nine challengers that organizers expected to take part. The entry fee was reduced in late 2010 from $1.3 million per team in a bid to entice competitors.

Those three teams — Emirates Team New Zealand, Luna Rossa and Artemis — have begun building their boats at a special workshop in New Zealand.

“We're hopeful of having more teams outside of the teams that are already building,” Ian Murray, the regatta director, told The New Zealand Herald. “But the reality is the runway is going to run out in the not-too-distant future.” Murray was in New Zealand for a meeting of prospective teams.

Stephanie Martin, a spokeswoman for the America’s Cup, said Tuesday that other teams have until June to commit to entering the event and begin building boats.

World Series racing is scheduled this year in 45-foot catamarans. Next year, the Luis Vuitton Cup series will be raced over 41 days in 72-foot catamarans from July to September, with the winner moving on to challenge Oracle Racing for the coveted cup in a best-of-nine challenger series in the early fall.

In late 2009, when San Francisco was vying — without any competition — to host the regatta, organizers forecast that as many as 600,000 people would watch the races from buildings, shorelines, hills and boats.